The U.S. Securities and Exchange Commission (SEC) is currentlyconsidering a proposal that would require institutional investors toaccount for their holdings in prime money-market funds—those thatinvest in short-term corporate debt—using a variable net assetvalue (NAV), rather than the stable NAV that is currently theindustry standard. The proposal was announced in June, and thedeadline for comments is September 17.

Thegoal would be to increase transparency, in order to avoid a runon money funds in future financial crises like the run thatoccurred in September 2008 when the Reserve Primary Fund “broke thebuck,” repricing shares below $1 to devalue investors' holdings.Critics of constant NAV money funds argue that their constant $1 price masks movement in the marketand that if they're going to promise liquidity on par with bankaccounts, they should be regulated like banks. The problem is thatwhat may seem like a fairly minor accounting change could have amajor impact on corporate usage of money funds.

Consulting firm Treasury Strategies conducted a study for the U.S. Chamber of Commerce that pins a dollarfigure on the impact to institutional investors of a move to afloating NAV for money-market funds: between $1.8 billion and $2billion up front, then another $270 million to $280 million peryear. Treasury Strategies came to these numbers by analyzing theeffects of the change on investors in an array of differentcategories, including corporations of all sizes and publicinstitutions such as municipalities and universities. “We applied alot of different cost components and then generated a veryconservative estimate,” says Steve Wiley, a manager with TreasuryStrategies.

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Meg Waters

Meg Waters is the editor in chief of Treasury & Risk. She is the former editor in chief of BPM Magazine and the former managing editor of Business Finance.